Challenging The Myths That Are Costing Us Millions.

The Safety Net

In a perfect world, with all being equal, no-one would pay a penny more than necessary for life’s essentials.

The reality is we all love a catchy jingle or a dancing bunny and we are all suckers for the next slick, funny or explosive advertising campaign. Or to put it a different way, we are all simply just too busy to look beyond the puppets, robots and opera singers for our next best deal.

Whoever shouts the loudest, and pays the most to appear on out TV screens or in our newspapers basically gets the majority of our business.

This is true of nearly all aspects of consumer life. However in today’s internet driven world why are we not all shopping around more to make sure we get the best deal. After all the ability to compare 100s of 1000s of products is simply only a few clicks of a smart phone away, and can take minutes to potentially save you 100s if not 1000s of pounds.

Compare, Compare, Compare

One of the most important areas where consumers need to take the time to look around is in the world of Loans and Finance. For example, if you take out the wrong insurance policy then you are with that provider for at most 12 months and can possibly loose a few hundred pounds. However if a customer chooses the wrong loan provider then they can be with that provider for anything up to 5, 10 or even 25 years. Thus this has the potential to cost them thousands upon thousands of pounds, and in the worst cases it could even cost them their home, family and health.

When it comes to loans, there has never been more information readily available to the consumer in order to compare products, while at the same time there has never been more money wasted with customers taking the quick option and applying directly to short term high cost loan providers.

At Fairmoney.com and the Campaign for Fair Finance, we are trying to change that. We are trying to promote the simple message that customers need to shop around and compare compare compare, specifically when shopping for those big ticket items and especially when they are looking to take out a loan.

StepChange - Consumer Credit Trends & Problem Debt

The latest research from debt charity StepChange has highlighted that there are widespread misconceptions about finance that can lead people with debt problems into digging a deeper hole for themselves, when in fact what they are aiming to do is borrow money to help get themselves out of that proverbial hole.

StepChange reports that working consumers all need to have a safety net for the realities of modern life that allows them to bounce back from financial setbacks thus avoiding potential long term financial difficulties.

Unfortunately for many their chosen “safety net” is flawed as it has been weaved around finding themselves their next quick loan. This is due to personal savings being too low to assist them, and/or as is in most cases their personal savings fund is nonexistent.

The StepChange report ‘Using Credit as a Safety Net’ reveals that working families are routinely running up high credit card balances, following which they have no means to clear and rely on paying the minimum required payments at the end of each month.

In addition many customers turn to multiple lending solutions and take out a multitude of different loans to help keep their head above water. For some however their only option is to fall into arrears. Daily collection calls become the norm as the default fees mount up each and every month.

StepChange state that 68% of those customers who rely on credit in times of financial difficulty are twenty more times likely to fall further into severe debt problems.

Unfortunately the Governments strategy on how best to help those consumers currently in financial difficulty is simply to offer them more benefits, and get the long term unemployed back to work.

This is not enough and will never be enough.

Education, Education, Education

FairMoney.com and the Campaign for Fair Finance believes that consumers need help to be more resilient in the face of debt crisis.

The government needs to develop a strategy that educates consumers on how best to build a robust safety net built around savings rather than borrowing to fill any potential gap.

Education is key and a reform of how and when benefits are paid is equally as important. Sure, consumers will always need to borrow money from time to time, to buy a house, purchase a car, to go on holiday etc and when they do we advise, as always that they compare products each and every time. However what is of utmost importance is that in times of crisis borrowing money should be your very last resort.

Ask For Help & Seek Alternatives

Speak with people. Turn to debt charities such as StepChange. After all that is what they are there for.

An alarming statistic is that only 5% of people with debt problems turn to Credit Unions in times of crisis, however more than 8% of consumers use/have used a payday loan provider. Bearing in mind that with a payday loan come interest rates of up to 1200% these figures are astonishing.

Once again education is key, with the majority of consumers not knowing about, or not understanding, exactly what a Credit Union does and what they can offer.

To find out more about Credit Unions, and to also find your nearest local Credit Union please take the time to read our short guide.